A Wall Street Journal (May 1, 2015) analysis just released suggests the cost of the new Apple Sport Watch is a smaller share of the retail price than other Apple products. The costs of parts and manufacturing for the cheapest version available total about $83.70. The watch sells for $349. That 24% ratio for parts and manufacturing is lower than the 29% to 45% ratio than for other Apple devices. The total bill of materials for the Watch Sport is $81.20 and manufacturing costs add about $2.50 per watch. These figures don’t take into account capital, logistics, R&D, intellectual property, or other supply chain costs.
Inside the Watch, a touch screen is supplied by TPKand a display module by Analog Devices. Apple manufacturers the S1 processor, while Toshiba and MicronTechnology supply the memory chip. The Bluetooth controller comes from Broadcom.
A key component of theatch made by one of two suppliers was found to be defective, prompting Apple to temporarily limit availability. That part is the so-called taptic engine, designed to produce the sensation of being tapped on the wrist. After mass production began in February, reliability testing revealed that some taptic engines supplied by AAC Technologies of Shenzhen, China, started to break down over time, forcing Apple to scrap completed watches as a result.
Classroom discussion questions:
1. What are the most critical components, cost-wise, of the watch?
2. What is a bill-of-materials (see Chapter 5)?